SearchGold moves toward production in Gabon

SearchGold Resources (RSG-V) has received two mining titles for its Bakoudou-Magnima gold project in Gabon, which is being developed with Moroccan company Managem, the majority owner. The titles include an exploitation permit of 160 sq. km, which allows mining, and an exploration permit of 2900 sq. km. A National Instrument 43-101 reserve and resource calculation and a feasibility study have been completed, and Managem and SearchGold would like to bring the project to production as soon as possible.

The proven reserve at Bakoudou-Magnima is 600,000 tonnes grading 2.5 grams gold per tonne, equivalent to about 48,000 oz. gold, and the probable reserve stands at 1.1 million tonnes grading 3 grams gold per tonne, amounting to about 107,000 oz., for total reserves of 155,000 oz. gold. These reserves form a part of the resources. Measured resources are 500,000 tonnes grading 2.8 grams gold per tonne, equivalent to about 48,000 oz. gold, and indicated resources are 1.9 million tonnes grading 3.1 grams gold per tonne, amounting to 184,000 oz. gold, for a total resource of about 232,000 oz.

The project is located on an archean greenstone belt, and mineralization is near surface, in saprolite. To date, drilling has encountered mineralization to a depth of 350 metres. The feasibility study calls for an open pit operation.

Philippe Giaro, SearchGold’s CEO, explains the background to the decision to go ahead with the mine.

“The question that I am asked repeatedly is, why didn’t you wait? Why didn’t you drill off all of this and wait till you had more ounces? It’s because, first of all, we are not in the driver’s seat for this project any more, and Managem wanted to go into production rapidly, because they prefer having a smaller capital expenditure and proving the viability of the project, and then going further on, and we don’t have any objection to that.”

Managem operates five mines in Morocco, and has stakes in two gold mines in West Africa in partnership with Semafo (SMF-T): the Kiniero mine in Guinea and the Samira Hill mine in Niger.

“The project had reached a stage where it needed a senior partner, for capital, for expertise, and therefore we presented this project to various mid-tier producers, and Managem came up with the best, most rapid offer, and they make sense, also because of the political ties between Gabon and Morocco, which are very strong, and it’s worked out well,” Giaro says.

SearchGold’s stake in the property is 36%, and when Managem delivers the final documents of the feasibility study, it will decrease to 27%. Capital expenditure to construct the mine is US$30 million, of which SearchGold’s portion is US$8.1 million. However, because of unfavourable conditions in the capital markets, SearchGold will probably exercise an option allowing it not to contribute its share to the capital expenditure by ceding another 4.5% in the mine to Managem, leaving SearchGold with a 22.5% stake. The project also has a local partner in Gabon who owns 10%, and the partner has to contribute 10% of the capital expenditure, or US$3 million.

The government of Gabon receives a 5% royalty on production, but does not own any carried interest in the project. There is also a corporate income tax in addition to the government royalty.

The feasibility study projects gold production at 40,000 oz. per year at a cut-off grade of 0.55 gram gold per tonne. Anticipated mine life is 3.5 years and gold recovery is projected at 88%. Mining costs will be US$5.44 per tonne ore and US$2.06 per tonne waste, while processing costs are forecast at US$8.86 per tonne. All-in operating expenses are projected at US$380 per oz. gold, which includes refinery costs, reclamation costs, withholding tax, government royalties and operator management fee.

At a gold price of $800 per oz. and a discount rate of 8%, the project’s net present value (NPV) is US$12 million. With an ownership stake of 27%, SearchGold’s portion of the NPV is US$3.25 million, while at an ownership stake of 22.5%, SearchGold’s portion of the NPV declines to US$2.7 million. The project’s cash profit forecast is US$24 million, and SearchGold’s share is US$6.5 million at an ownership of 27%, or US$5.4 million at an ownership of 22.5%. These calculations are based only on the 155,000 oz. of reserves, so if more gold is produced from the 77,000 oz. of resources, profits and NPV will grow.

“This is a small project, and I acknowledge that. The intent here is to get started with the project and realize the entire potential of the concession,” Giaro says.

The drilling budget for 2008 is US$2 million, and the 2009 budget has yet to be finalized. The company owns two drills, and a third one is being shipped to Gabon. It is anticipated that after 2010, drilling will be paid for from cash flow generated by the mine.

The company uses the village of Bakoumba as a base and for core storage. The village is located about 40 km northwest of the project, and there is a well-maintained unpaved logging road to the village.

The nearest railway line is at Moanda, linking this town with the Atlantic seaport of Libreville. The distance to Moanda is about 80 km, and it consists mostly of a well-maintained unpaved logging road.

Electricity is not available on site, so the feasibility study calls for using diesel generators. Water will be pumped from the Koudou river, 1 km away.

SearchGold’s second project in Gabon is the Booue-Mimongo property, which holds 7,900 sq. km and has good road access. The company has an option from Swala Resources to acquire 50% of the property by spending US$1.5 million on exploration over three years, of which one year has been completed. The project is at an early-stage and no drilling has been done.

Turning from Gabon to Burkina Faso, SearchGold’s third project is the 100%-owned Dou and Taouremba properties, comprising together 450 sq. km. Road access to this grass-roots project is good. The company’s fourth project, the Zitenga 2 property, holds 185 sq. km. So far, exploration on Zitenga included early stage stream and soil geochemistry. The property has some outcrops, and road access is good.

The third west African country where SearchGold is active is Guinea, where it is working on the Mandiana project which holds 475 sq. km and is located near the border with Mali. Following surveys of termite mounds, the company proceeded with a reverse-circulation drill program on three sites. The best intersection was at N’Diambaye, cutting 22 metres of 12 grams gold per tonne. Drilling at Karfakolo returned a hole with 10 metres of 3.7 grams gold per tonne, while an intersection on the Intercolonial site returned 20 metres of 1.9 grams gold per tonne.

A number of new drill targets have now been identified, and SearchGold is planning to proceed with more drilling. Giaro acknowledges that the political situation in Guinea is not easy, but hopes that things will improve with new prime minister Jean Eyeghe Ndong, who is a former mines minister. He is seen as pro-mining, and so far he has managed to bring down the inflation rate.

SearchGold has 143 million shares fully diluted and $300,000 in the treasury, and it plans to raise $1-1.5 million in the fourth quarter. SearchGold owns 2.7 million shares, or 8.7%, of Stellar Diamonds, a small unlisted diamond miner with projects in West Africa, and 2.1 million shares, or 8.7%, of Golden Share Mining (GSH-V), an explorer focused on Quebec and Ontario.